Eco Demand Estimation

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Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April. 1. Compute the elasticities for each independent variable. Option 1 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q = Quantity demanded of 3-pack units P (in cents) = Price of the product = 500 cents per 3-pack unit PX (in cents) = Price of leading competitor’s product = 600 cents per 3-pack unit I (in dollars) = Per capita income of the…show more content…
Determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results. The price Elasticity was -1.19 which is elastic. This score implies that customers are sensitive to price changes, and lowering price would increase demands in higher proportion while increasing price would decrease demands significantly. See the Table 1. Table 1. Price Elasticity. Price (cent) | Elasticity | QD | Revenue | 100 | -0.122 | 34450.0 | $ 34,450.00 | 200 | -0.278 | 30250.0 | $ 60,500.00 | 300 | -0.484 | 26050.0 | $ 78,150.00 | 384.47 | -0.718 | 22502.3 | $ 86,514.44 | 400 | -0.769 | 21850.0 | $ 87,400.00 | 460 | -0.999 | 19330.0 | $ 88,918.00 | 500 | -1.190 | 17650.0 | $ 88,250.00 | 600 | -1.874 | 13450.0 | $ 80,700.00 | 700 | -3.178 | 9250.0 | $ 64,750.00 | 800 | -6.653 | 5050.0 | $ 40,400.00 | 900 | -44.471 | 850.0 | $ 7,650.00 | Cross Elasticity was 0.67. This implies that the product is supplementary to competitor’s products. If competitors raise price,
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